Result will put pressure on George Osborne, the chancellor, to ease austerity measures and take steps to boost economy
The Bank of England is expected to forecast zero growth in its quarterly inflation report on Wednesday as the double-dip recession deepens and the eurozone crisis continues.
The bank’s governor, Sir Mervyn King, is expected to indicate no growth for 2012, compared with 0.8% predicted three months ago and 2% a year ago.
The chancellor, George Osborne, will come under pressure as a result to soften austerity measures and move to boost growth in the economy. The IMF last month said the government should ease its fiscal consolidation, which includes spending cuts and tax reforms, if the recovery continued to stall.
As the sluggish economy weighs on prices, inflation forecasts are likely to be cut as well, with the consumer price index dipping below the government’s 2% target by the end of the year.
The UK economy contracted by a greater-than-expected 0.7% between April and June, meaning the double-dip recession is the longest since the 1950s, after the additional bank holiday for the Queen’s diamond jubilee hit output.
Events such as the Olympics are expected to provide a slight bounceback but nevertheless economists predict a bleak forecast overall from the central bank.
Howard Archer, chief UK and European economist at IHS Global Insight, said the bank will “likely acknowledge that the economy has taken a significant turn for the worse and currently faces a worrying and uncertain outlook”.
The bank in July injected a further £50bn into the economy, bringing its quantitative easing programme to a total of £375bn. But the outlook has darkened since as dire construction and manufacturing output drove the biggest drop in GDP since the height of the financial crisis three years ago.
In the eurozone, borrowing costs in Spain and Italy remain at levels that are close to where Greece and Ireland took a bailout from the EU.
British homeowners are in for a boost as King is expected to say that interest rates will be maintained at their historic low of 0.5%, or close to that, for at least several more months.